It is strange to find the SSGC and the KESC engaged in a war of words conducted through the media, in an apparently desperate attempt to absolve themselves of any responsibility for bringing life to a standstill for the majority of Karachiites through frequent and prolonged bouts of loadshedding.

However, the problem of circular debt in the petroleum sector will not be resolved by such unseemly public bickering.

The various petroleum policies introduced in the past and still in operation today have sought to offer inducements to prospective foreign investors in the country's petroleum exploration and production sector, primarily through the linking of well-head prices and revisions therein to the border price of fuel oil.

This was not an unreasonable pricing formula for attracting foreign investment, which not surprisingly gravitates to countries offering prices comparable to those available internationally, with the added incentive of growing demand.

While this was necessary to draw overseas exploration and production investors, there was no such compulsion in the case of Pakistani companies such as the PPL and the OGDCL which have also become undeserving beneficiaries of this pricing formula.

This has produced the absurdly ironic situation where in its annual report the PPL views “significant decline in international crude oil prices resulting in consequential reduction in profitability” as a major risk.

So falling oil prices which are greeted with relief by all energy-importing countries become a major calamity for the PPL and the OGDCL too.

This pricing formula is a major cause of the circular debt crisis bedevilling the petroleum sector.

A more realistic basis for fixing well-head prices for the PPL and the OGDCL — such as allowing exploration and development expenses as a reimbursable expense as part of guaranteed revenue requirements — would ease considerably the circular debt crisis.

ASAD SIDDIQI
Lahore